Update: The Multi-Billion Dollar Shareholder-Suit Payoffs Investigation Is Gaining Steam; Only the WSJ Cares
The “we knew it all along, we just couldn’t prove it” investigation of the manipulation of shareholder shakedown suits continues.
These are the “it’s management’s fault” lawsuits that have followed, as night follows day, almost any significant drop in a major publicly-held company’s stock.
Only The Wall Street Journal (link requires subscription) seems to care:
Federal prosecutors have stepped up their criminal investigation of Milberg Weiss, the nation’s largest class-action law firm, granting immunity to two former partners as they intensify their scrutiny of a third, prominent litigator William S. Lerach.
A grand jury in Los Angeles heard secret testimony three weeks ago from one of the former partners given immunity, Alan Schulman, lawyers close to the case said. Mr. Schulman’s cooperation is a major development because he worked alongside Mr. Lerach, a former senior partner at Milberg Weiss and one of the nation’s most prominent class-action lawyers.
The four-year investigation is focused on whether secret, illegal payments were made by the New York-based firm to plaintiffs whose names repeatedly appeared on securities class-action lawsuits brought by the firm, according to court documents and lawyers close to the case. Plaintiffs in such suits are not permitted to receive payments beyond those awarded by courts, to avoid conflict between their interests and those of the rest of the class. Often they must testify under oath that they haven’t received undisclosed compensation.
Prosecutors have informed Mr. Lerach and two other former partners, David Bershad and Melvyn Weiss, that they could face indictment for conspiracy, according to lawyers close to the case. The government also is probing payments made by Milberg Weiss to a financial analyst who repeatedly served as an expert witness in the firm’s cases, apparently taking the investigation in a new direction. Additionally, a new round of subpoenas has been sent to at least a half-dozen firms that were co-counsel with Milberg in securities class-action cases reaching back a decade or more.
The investigation is significant — and controversial — because it targets one of the nation’s most aggressive and successful law firms. Milberg Weiss has brought hundreds of securities lawsuits and won tens of billions of dollars in settlements and judgments against companies accused of defrauding investors.
… The outlines of the investigation first surfaced in an indictment handed up by the grand jury in June. The grand jury charged Seymour Lazar, a retired Palm Springs, Calif., lawyer who was a plaintiff in at least 50 Milberg Weiss securities cases, with fraud, conspiracy and money laundering, saying he had secretly been given $2.4 million for taking a leading role in those cases. Mr. Lazar’s attorney denied the charge and said that the payments, which were made by Milberg Weiss to Mr. Lazar’s lawyer, were legal and that no effort was made to conceal them.
… Prosecutors also are probing Milberg payments to John B. Torkelsen, a financial analyst based in Princeton, N.J. He testified as an expert witness in scores of Milberg cases and was paid tens of millions of dollars by the firm over nearly 20 years. Mr. Torkelsen typically testified on shareholder damages, which could influence the size of settlements or court judgments. Expert witnesses are not permitted to testify on a contingent basis or receive undisclosed payments.
This investigation doesn’t fit the media template of “poor, pitiful shareholder bamboozled by lying, greedy management” that is the basis for the (in my opinion) mostly phony suits over stock-price drops. So it’s being ignored, despite the enormous sums at stake and potential discrediting of some of the major “class-action heroes” of the 1980s and 1990s.
Part of the reason for the downplay of the story may be that observers think the partners and others involved are untouchable. We’ll see.
FLASHBACK: Payoffs to Shareholder Suit Plaintiffs Alleged
Tom:
Any stats on how many of these cases go to jury trial versus adjudication by a judge?
In any event, those two ‘classes’ would bear some responsibility as well for not seeing through frivolous lawsuits.
This was the case made about two weeks ago when The Journal Editorial Report featured a lawyer named Philip Howard was featured. Mr. Howard has written a book entitled The Collapse of the Common Good : How America’s Lawsuit Culture Undermines Our Freedom. The transcript for the show is here.
Comment by Porkopolis — August 19, 2005 @ 11:39 am
This is why–jury inconsistency. The quote is from the link you cited. Companies would rather limit the damage to a few million or some lower leverl than take a chance on six people on welfare and six bored postal carriers awarding hundreds of millions.
(from link)
PHILIP HOWARD: Yeah, much less a jury. But juries don’t have any authority to make binding precedent. That’s the problem with juries. It’s not that they’re not sensible most of the time — most of the time. It’s that they don’t, there’s no consistency. Every jury’s different. So the current system basically encourages wildly inconsistent verdicts. That’s what’s wrong. That’s exactly what the rule of law is not supposed to do.
Comment by TBlumer — August 19, 2005 @ 2:36 pm